Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of a Proposed Rule Change on Bid/Offer Differentials for In-The-Money Option Series, 35396-35397 [2014-14444]

Download as PDF 35396 Federal Register / Vol. 79, No. 119 / Friday, June 20, 2014 / Notices number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Phlx– 2014–38, and should be submitted on or before July 11, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.40 Kevin M. O’Neill, Deputy Secretary. Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The ISE proposes to amend its rules to require that market makers quoting certain in-the-money options series maintain quotes that are no wider than the spread between the NBBO in the underlying security. The text of the proposed rule change is available on the Exchange’s Web site (https:// www.ise.com), at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B and C below, of the most significant aspects of such statements. BILLING CODE 8011–01–P (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 1. Purpose [FR Doc. 2014–14421 Filed 6–19–14; 8:45 am] [Release No. 34–72399; File No. SR–ISE– 2014–31] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of a Proposed Rule Change on Bid/Offer Differentials for In-The-Money Option Series mstockstill on DSK4VPTVN1PROD with NOTICES June 16, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 4, 2014, the International Securities Exchange, LLC (‘‘Exchange’’ or ‘‘ISE’’) filed with the Securities and Exchange 40 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 22:31 Jun 19, 2014 Jkt 232001 The purpose of the proposed rule change is to amend Rule 803(b)(4)(i) to require that market makers quoting certain in-the-money options series maintain quotes that are no wider than the spread between the national best bid and offer (‘‘NBBO’’) in the underlying security. The Exchange believes that requiring that market makers post tighter quotes in these option series will improve market quality to the benefit of investors that trade on the ISE. In the course of maintaining fair and orderly markets in appointed options classes, market makers are generally required to price options contracts fairly by, among other things, bidding and offering so as to create differences of no more than $5 between the bid and offer following the opening rotation in an PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 options contract.3 In addition, Rule 803(b)(4)(i) presently permits market makers to submit quotes with wider bid/ offer differentials for in-the-money options series where the market for the underlying security is wider than the market maker’s regular quotation requirements. In particular, a market maker quoting an in-the-money options series may submit quotes that are as wide as the quotation on the primary market of the underlying security. For example, if the primary market for ABC has a quote of $65 (bid)—$73 (offer), ISE market makers may quote in-the-money option series on that security with a bid/ offer differential of $8. The wider bid/ offer differentials allowed in these circumstances are intended to give market makers more flexibility with respect to their quoting obligations as options are priced relative to the price of the underlying security. The Exchange proposes to change this obligation to instead require that market makers quoting these in-the-money options series maintain quotes that are no wider than the spread between the NBBO in the underlying security. A market maker quoting an in-the-money options series can hedge its position by trading in the underlying security at the NBBO, which may be narrower than the quotation on the primary market. For instance, in the example above, other exchanges that trade ABC may collectively have a higher bid of $66 and a lower offer of $72. Under the proposed rule, ISE market makers would be required to quote in-the-money option series on ABC with a bid/offer differential of no more than $6. The Exchange believes that measuring the permissible width of a market maker’s quote against the NBBO more accurately reflects the current trading environment where multiple trading venues contribute to the prevailing market price of a security underlying an options series traded on the ISE. 2. Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.4 In particular, the proposal is consistent with Section 6(b)(5) of the Act,5 because 3 See Rule 803(b). Unless the ISE establishes wider differentials for specific option classes, bid/ offer differentials prior to the opening rotation must be no more than $0.25, $0.40, $0.50, $0.80, or $1, with the larger bid/offer differentials permitted for option contracts with higher priced bids. Id. 4 15 U.S.C. 78f(b). 5 15 U.S.C. 78f(b)(5). E:\FR\FM\20JNN1.SGM 20JNN1 Federal Register / Vol. 79, No. 119 / Friday, June 20, 2014 / Notices is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. This change is designed to benefit investors, who will be able to trade at better prices due to narrower spreads in in-the-money option series covered by the proposed rule change. The Exchange believes that market makers should maintain quotes that are no wider than the spread between the NBBO in the underlying security, as they can hedge their positions by trading in the underlying security at the NBBO, which may be narrower than the quotation on the primary market. As explained above, the Exchange believes that measuring the permissible width of a market maker’s quote against the NBBO more accurately reflects the current trading environment where multiple trading venues contribute to the prevailing market price of a security underlying an options series traded on the ISE. (B) Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is intended to encourage tighter markets in in-themoney option series and is not designed to have any competitive impact. While market makers may be required to narrow their quotes in these series, the proposed rule change still affords sufficient flexibility to allow market makers to do so while managing their risk by hedging in the underlying security at the NBBO. mstockstill on DSK4VPTVN1PROD with NOTICES (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which VerDate Mar<15>2010 22:31 Jun 19, 2014 Jkt 232001 the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml) or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2014–31 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2014–31. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of ISE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE– 2014–31 and should be submitted on or before July 11, 2014. PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 35397 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–14444 Filed 6–19–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72398; File No. SR– ISEGemini–2014–15] Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing of a Proposed Rule Change on Bid/Offer Differentials for In-The-Money Option Series June 16, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on June 5, 2014, ISE Gemini, LLC (‘‘Exchange’’ or ‘‘ISE Gemini’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change ISE Gemini proposes to amend its rules to require that market makers quoting certain in-the-money options series maintain quotes that are no wider than the spread between the NBBO in the underlying security. The text of the proposed rule change is available on the Exchange’s Web site (https:// www.ise.com), at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in 6 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\20JNN1.SGM 20JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 119 (Friday, June 20, 2014)]
[Notices]
[Pages 35396-35397]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14444]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72399; File No. SR-ISE-2014-31]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of a Proposed Rule Change on Bid/Offer
Differentials for In-The-Money Option Series

June 16, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 4, 2014, the International Securities Exchange, LLC
(``Exchange'' or ``ISE'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the self-regulatory organization. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------

\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The ISE proposes to amend its rules to require that market makers
quoting certain in-the-money options series maintain quotes that are no
wider than the spread between the NBBO in the underlying security. The
text of the proposed rule change is available on the Exchange's Web
site (https://www.ise.com), at the principal office of the Exchange, and
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections A, B and C below, of the
most significant aspects of such statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
The purpose of the proposed rule change is to amend Rule
803(b)(4)(i) to require that market makers quoting certain in-the-money
options series maintain quotes that are no wider than the spread
between the national best bid and offer (``NBBO'') in the underlying
security. The Exchange believes that requiring that market makers post
tighter quotes in these option series will improve market quality to
the benefit of investors that trade on the ISE.
In the course of maintaining fair and orderly markets in appointed
options classes, market makers are generally required to price options
contracts fairly by, among other things, bidding and offering so as to
create differences of no more than $5 between the bid and offer
following the opening rotation in an options contract.\3\ In addition,
Rule 803(b)(4)(i) presently permits market makers to submit quotes with
wider bid/offer differentials for in-the-money options series where the
market for the underlying security is wider than the market maker's
regular quotation requirements. In particular, a market maker quoting
an in-the-money options series may submit quotes that are as wide as
the quotation on the primary market of the underlying security. For
example, if the primary market for ABC has a quote of $65 (bid)--$73
(offer), ISE market makers may quote in-the-money option series on that
security with a bid/offer differential of $8. The wider bid/offer
differentials allowed in these circumstances are intended to give
market makers more flexibility with respect to their quoting
obligations as options are priced relative to the price of the
underlying security.
---------------------------------------------------------------------------

\3\ See Rule 803(b). Unless the ISE establishes wider
differentials for specific option classes, bid/offer differentials
prior to the opening rotation must be no more than $0.25, $0.40,
$0.50, $0.80, or $1, with the larger bid/offer differentials
permitted for option contracts with higher priced bids. Id.
---------------------------------------------------------------------------

The Exchange proposes to change this obligation to instead require
that market makers quoting these in-the-money options series maintain
quotes that are no wider than the spread between the NBBO in the
underlying security. A market maker quoting an in-the-money options
series can hedge its position by trading in the underlying security at
the NBBO, which may be narrower than the quotation on the primary
market. For instance, in the example above, other exchanges that trade
ABC may collectively have a higher bid of $66 and a lower offer of $72.
Under the proposed rule, ISE market makers would be required to quote
in-the-money option series on ABC with a bid/offer differential of no
more than $6. The Exchange believes that measuring the permissible
width of a market maker's quote against the NBBO more accurately
reflects the current trading environment where multiple trading venues
contribute to the prevailing market price of a security underlying an
options series traded on the ISE.
2. Basis
The Exchange believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder that are applicable to a national securities exchange, and,
in particular, with the requirements of Section 6(b) of the Act.\4\ In
particular, the proposal is consistent with Section 6(b)(5) of the
Act,\5\ because

[[Page 35397]]

is designed to promote just and equitable principles of trade, remove
impediments to and perfect the mechanisms of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------

\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

This change is designed to benefit investors, who will be able to
trade at better prices due to narrower spreads in in-the-money option
series covered by the proposed rule change. The Exchange believes that
market makers should maintain quotes that are no wider than the spread
between the NBBO in the underlying security, as they can hedge their
positions by trading in the underlying security at the NBBO, which may
be narrower than the quotation on the primary market. As explained
above, the Exchange believes that measuring the permissible width of a
market maker's quote against the NBBO more accurately reflects the
current trading environment where multiple trading venues contribute to
the prevailing market price of a security underlying an options series
traded on the ISE.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
intended to encourage tighter markets in in-the-money option series and
is not designed to have any competitive impact. While market makers may
be required to narrow their quotes in these series, the proposed rule
change still affords sufficient flexibility to allow market makers to
do so while managing their risk by hedging in the underlying security
at the NBBO.

(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others

The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml) or
Send an email to rule-comments@sec.gov. Please include
File Number SR-ISE-2014-31 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2014-31. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of ISE. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-ISE-2014-31 and should be
submitted on or before July 11, 2014.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

\6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14444 Filed 6-19-14; 8:45 am]
BILLING CODE 8011-01-P

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